Globalisation of Business

and Indian Economy

Dr. Tarun Das, Eco.Adviser.
MOF

11 November 2005 Globalisation by Tarun Das 1

 Contents
I. Reforms and Extent of Globalisation
II. Macro Economic Impact
1. Sustained Economic Growth
2. Improvement in External Sector
III. Strengths, challenges and Prospects
1. Strengths
2. Constraints
3. Prospects

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 I. Reforms and Extent
of Globalisation
•

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 1.1 Economic Reforms in
India
• Since July 1991 India has initiated wide-
ranging reforms in trade, industry,
financial and public sectors.
• To improve efficiency, productivity and
international competitiveness of Indian
industries and to impart dynamism to
overall growth process.
• Emphasis is on so-called LPG
(liberalisation, privatisation and
globalisation).

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 1.2 Basic Characteristics of
Reforms
 Gradual, Step by Step and Evolutionary
Approach, not a Big Bang, Shock Therapy
or Revolutionary Approach
 General political consensus
 Strong emphasis on “human face”
 Government owns the reforms
 No backtracking of reforms
 No write-off / rescheduling of external debt
 Practically no sacrifice made by people

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 1.3 Major Reforms for
Globalisation
 Rupee is fully convertible on current account.
 Gradual capital account convertibility. Rupee is fully
convertible for foreign residents.
 Market determined exchange rate
 All licenses for foreign trade are abolished.
 Peak import duty reduced from 400% to 20%.
 Liberal regime for FDI and technology transfer.
 FERA replaced by Foreign Exch. Mangt. Act
 Liberal policy for external commercial borrowing
and outward investment
 Liberalisation of financial and capital markets
subject to establishment of regulatory bodies.

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 1.4 Globalisation Extent(% of
GDP)
Indicators India China
2003 2003
Merchandise trade 24 45
Services trade 16 23
Trade of goods & services 40 68
Private capital inflows 3.1 10.4
Foreign direct investment 0.5 5.0
Official dev. assistance 0.4 0.1
External debt 18 13
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 1.5 Extent of Globalisation

Indicators India China

2003 2003
Mean tariff rate (%) 26 15

Share in world exports (%) 0.8 6.2

Inbound tourists (million) 3 36
Outbound tourists (million 4 12
Tourist earnings ($billion) 3 20

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 Table-1.6 Significant growth of
services sectors
1. Services production is the fastest growing sector
accounting for 65% of global GDP and 25% of
global trade.
2. Global services exports recorded higher annual
GR (of over 9%) in 1985-2000 than merchandise
exports.
3. Global services trade more than trebled in 15
years to $1.4 trillion in 2000.
4. Developing countries witnessed the fastest
increase (four folds) in services exports, and
increased their share in global services trade to
18% in 1995-2000.

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 Table-1.7- New Growth
Dynamics through IT-ITES,
Offshoring and BPO
1.Significant growth in R&D, IT-ITES and offshoring
activities leading to explosive growth in
knowledge-based industries.
2.Foreign affiliates established in automobiles, food
processing, electronics, IT, transport,
communications and financial services.
Outsourcing increased in IT, distribution, contact
centres, back office, R&D and manufacturing.
3. India emerged as a major player in IT-ITES and
outsourcing hub due to high quality, skilled
manpower, and low operations cost.
  

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 Table-1.8-Significant Progress of
India in IT-enabled services and
BPOa growth of 45% in 2004-05
1. Indian ITES-BPO industry recorded
driven by increased offshoring by firms from US and Europe.
2. India emerged as the 18th largest service exporter & increased
its share in world service exports from 0.6% in 1990 to 1.3% in
2003.
3. Exports were led by rapid rise of professional, business, travel
and software services.
4. Indian software exports increased from only $0.7 billion in
1995 to $17.2 billion in 2004-05 and accounted for 34% of
total services exports. Globally, India ranks Second only to
Ireland in software and IT exports.      

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 1.9 Substantial fall of
0cean freight and air
fares
Year Ocean freight Airfare per PKM
1920=100 (in 1990 US$)
1960 28 0.24
1970 29 0.16
1980 25 0.10
1990 30 0.11
2000 27 0.08

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 1.10 Substantial fall of
telephone call charges
and computer prices
Year Cost of 3-Min Computer Price
Telephone call (Base 2000=100)
New York -London
(In 2000 US$)
1960 60.42 186,900
1970 41.61 19,998
1980 6.32 2,794
1990 4.37 728
2000 0.40 100

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 2. Sustained
Economic
Growth

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 2.1 India emerged as one of the fastest grow ing economies
in 1990- 2001
1 2.0
10 .0
1 0.0
Average growth rate in 1990s

8.0 7.7
6 .7
7.4 6 .5
(% )

6.0
6.3
6.8
4.0
6.2 6.0 5.9
2.0

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11 November 2005 Globalisation by Tarun Das 15

 2.2 Sectoral GR and shares in India
(%)
Growth rate 1980-90 1992-05
Agriculture 3.1 2.9
Industry 7.2 6.6
Services 6.5 8.4
All Sectors 5.5 6.5
Sectoral Shares 1993-94 2004-05
Agriculture 33 21
Industry 24 27
Services 43 52
Total 100 100

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 2.3 Sectoral Employment GR
and shares in India (%)
Growth rate 1983-1993 1993-2000
Agriculture 2.2 0.0
Industry 2.5 2.6
Services 3.5 5.1
All Sector 2.7 1.1
Sectoral share 1983 1999-2000
Agriculture 63 57
Industry 16 17
Services 21 26
Total 100 100

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 2.4 Impact on Financial Sectors
Item Mar-96 Mar-04
1.No.of foreign banks 33 33
2.New private banks 9 10
3.Gross NPA ratio 24.8 7.2
4.Net NPAs ratio 10.7 3.0
5.Op. profits ratio 1.6 2.7
6.Net profits ratio 0.2 1.1
7.CRAR (Capital adequacy ratio) No. of Banks
-- Above 10% 43 87
8.Number of banks 84 90
.

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 3 Significant
Improvement
in External Sector

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3.1 Significant improvement
in external sector
Items 1990-91 2004-05
1.Exports GR (% per annum) 9.0 24.4
2.Exports/ GDP ratio (%) 5.8 11.6
3.Imports/GDP ratio (%) 8.8 17.1
4.Trade deficit (% of GDP) -3.0 -5.5
6. Invisible/GDP ratio (%) -0.1 4.5
7.Current A?C def (% of GDP) -3.1 -0.9
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3.2 Significant improvement
in external sector
Items 1990-91 2004-05
1.Foreign invest. Inflow ($ Bln 0.1 12.5
2.Foreign exch. rev ($ Bln) 5.5 131
3.Imports cover (Months) 2.5 16
4.External debt (% of GDP) 38.5 16.5
6.Ext.debt service ratio (%) 35.3 6.5
7.Short term to total debt (%) 10.2 5.1
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 IV Strengths, Challenges
and Prospects

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 4.1 Strengths of Indian
Economy
 Fourth largest economy in terms of PPP-
adjusted GDP after USA, China and Japan
 Largest pool of technical manpower
 Demographic Dividends- Largest share of
working population in total population
 Largest English speaking population
 Huge domestic market
 Rich natural resources, well established
financial system, wide spread
infrastructure, dynamic private sector
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 4.2 Constraints to Growth
and Competitiveness-
Domesticconstraints
Growing infrastructure
High fiscal deficit
High inflation
Low real deposit rates
High energy intensity
Slowdown of reforms
Weak regulatory institutions
Outdated laws on business
 Inflexible
11 November 2005 Land and
Globalisation Labour
by Tarun Das markets24
 4.3 Constraints to Growth
and Competitiveness-
 Hardening ofExternal
international prices of oil,
minerals and metals
 Greater Risk- Fluctuations of exchange rate,
interest rate, commodity prices, volatility in
capital flows
 Money laundering, abuse of capital,
smuggling, international terrorism, drug
trafficking, immoral trade
 Geo-political issues and market risk
 Global warming and environmental
degradation Globalisation by Tarun Das
11 November 2005 25
 4.4 Implications for Business
 World is a global village
 Knowledge and Information Technology
are the most valuable assets
 Wider choice of resources- domestic/
foreign, debt/ equity/ portfolio etc.
 Management of risk is an important task
 Emphasis on public-private partnership
and risk sharing

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 4.5 Need to strengthen Systems for
 Management information system
 Asset-Liability Management
 Good corporate governance
 Assessment and management of risk
 Strengthening audit and accounting
 Performance Audit
 Policy Audit

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 4.6 Concluding Remarks
 As first generation reforms take root and second
generation reforms unfold, India is emerging as a
favourite destination for investment and a land of
immense opportunity for all.
 India should maintain its open door policy in
goods & services production, investment,
trade.
 Carried to their logical ends, economic reforms
would make India as one of the most dynamic
economies of Asia by 2010.
 India is “an economic miracle” waiting to happen.
 All of us have to play a distinct role in that exciting
process of development.
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 Thank you
Have a Good Day

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